Break Even

Break Even

Fixed costs
1. a cost that will not change with output
2. Examples-Rent, Salary
variable costs
1. costs that do change with output
2. Example-Raw materials, insurance
Break even analysis
1. Shows the point at which a business expects to start making a profit.
  1. it can be used to calculate the sales needed to make a profit at any given time or price
Working out the break even point
1. Fixed costs / selling price - variable costs
Table and chart method
1. Step 1- Work out the table
  1. step 2- plot fixed costs
    1. step 3- plot variable costs
      1. step 4- plot total cost
        step 5- plot sales line
        step 6- when the sales line and total cost line cross it shows the break even point.
        draw a dotted line down to the number on the x axis and that's the break even point
  2. plot Y and X axis on the graph
Calculations
1. total revenue
  1. number of sales x selling price per unit
2. Total costs
  1. Fixed costs + variable costs
3. Profit
  1. Total Revenue - Total costs
Advantages and disadvantages
1. Advantages
  1. calculate in advance the amount of sales needed to break even
    1. shows changes in output affects profits
2. Disadvantages
  1. it assumes all output
    1. in accurate graph plotting can mess up the whole graph
Ict
1. how will it help with break even graphs
  1. more accurate
    1. quicker can make more changes quickly
      1. if you need to add something the computer will do it for you.

Resource summary

	Created by Emstar about 10 years ago